The two countries have engaged in yet another conflict recently in the wake of Pahalgam Terrorist Attack. The last escalation was witnessed in 2019 amid Pulwama Attack. And we have seen many similar situations. This isn’t the first time.
The way I see it – both sides are smart enough and understand that a war can only bring destruction and can result in massive (massive is probably a small word here) casualties, given the combined population of the two countries is more than 1.8 billion. Having said that, some escalation cannot be ruled out due to political reasons.
How do we position ourselves as PSX investors in this situation? I can see three different strategies in this scenario.
- Sell everything today and keep cash in hand. When things cool down and you are feeling confident, you can get back in. In this case, you may be buying back at higher prices but that is probably the cost of insurance against large scale problem. Having said that, I believe we would have bigger things to worry about in case of a full-scale war.
- Relax and do nothing. As mentioned above, we would have more important things to worry about in case of war. When things cool down, your portfolio can gradually regain.
- Keep your SIP mode on and continue buying if market falls. This is a riskier approach but could offer you supernormal gains once things are back to normal.
If you have any other strategy in mind, please do share in the comments.
What should be our strategy? There is no right or wrong here. Your approach depends on your risk tolerance and whatever you are comfortable with.
Risk tolerance is usually ignored by investors when it comes to PSX; however, it is the single biggest determinant of your investing strategy. We have also recently made a video on how to assess your risk tolerance and come up with asset allocations. You can watch that if you are unclear on this.